The spat that clouded the test prep market

December 22, 2011, 3:24 PM UTC

By Chadwick Matlin, contributor



FORTUNE — When Chad Troutwine called Sonny Pitchumani in 2006, their little spat wasn’t yet big enough to include Google, Yelp and the rest of the GMAT test-prep community. In a few years it would be, highlighting the twisted relationship between online reviews and GMAT test prep. But it wasn’t that yet.

In 2006 Troutwine, the CEO of Veritas Prep, a test-prep company, just picked up the phone to make a courtesy call. Troutwine had noticed that Pitchumani, the CEO of Veritas’ competitor, Maple Leaf International Consulting, had been slagging Veritas on MLIC’s website, claiming Veritas was overpromising and underdelivering. Troutwine explained why Pitchumani had it all wrong and asked him to take the statements down. Pitchumani said he’d look into Troutwine’s concerns and remove the offending material if he agreed.

He didn’t.

And so started a strange and obscure battle that became more than a disagreement between the two competitors. With the help of the courts, Veritas, a ten-year-old Malibu company that has instructed about 30,000 thousand students and says it makes about $10 million every year, spent the next five years trying to stop MLIC from defaming it across the web. But no matter what it tried, it couldn’t stop it. The Internet was too vast, and identities were too easily anonymized. Soon the attacks were coming from multiple sources, including third-party sites that were about far more than test-prep. This wasn’t just about two test-prep companies anymore. It had become a cautionary tale for any small business that relies on word of mouth, and just how easily that word-of-mouth can be tainted.

Pitchumani has had a vendetta against Veritas for half a decade, and despite being sued twice by Veritas says, “I don’t think we have any relationship with them.” Pitchumani started critiquing Veritas because “there was a huge discrepancy with what we heard and what they claimed” and he figured somebody ought to point it out. Instructor qualifications, coursework requirements, the legitimacy of Veritas’ business practices — Pitchumani says Veritas overstates it all. Veritas, of course, denies.

Pitchumani says he started MLIC in 1995, after a stint as an engineer at Phillips. Since then he’s watched as the industry has bloomed, but MLIC has largely been left behind. It’s a bit player in the industry; and its websites — there is a maze of them — look it, lacking the polished sheen of Manhattan GMAT, Kaplan and others. Several test-prep officials I talked to had never heard of MLIC.

But on the web, even a nobody — especially a nobody — can be heard. When Pitchumani was first posting about Veritas’ “highfalutin” claims, it was only on his own websites. But then after the first lawsuit, anonymous reviews started trickling out onto third-party sites. Yelp, Google (GOOG) and GMAT social networks like BeattheGMAT.com and GMATClub.com started hosting the reviews, and the attacks turned more personal, claiming Troutwine was too focused on his documentary film projects to run a good company. For Veritas, a company that is so obsessive about word of mouth it pays its instructors a bonus for every positive review, this was a problem. “Anyone who wants to do damage like this has amazing leverage,” Scott Shrum, Veritas’ online marketing guru says. “For every 10 reviews we write, he can write one or two and make us look bad.”

Veritas had a suspicion that Pitchumani was the one writing these new anonymous reviews. They had language very similar to MLIC’s sites, and relations with Pitchumani were still fraught. So Veritas took him back to court, focusing on the IP address on some of his postings on the GMAT network sites. They matched the IP to an email that an MLIC official named Randal Nelson (who Veritas doesn’t believe actually exists) had sent to Veritas in 2007. Both the email and the anonymous reviews were coming from Toronto, and a judge thought Veritas Prep had sufficient evidence to prove MLIC was the one writing the reviews, and that the reviews were hurting its business. It ordered Pitchumani to pay $129,319.09. Despite this, Pitchumani continues to deny the accusations: “We don’t do that. We haven’t done that. I don’t know who does that. Maybe they can do that themselves and claim that.”

Pitchumani also denies the lawsuit and the ruling’s validity. He says Veritas never served him appropriate paperwork, nor sued the right company, claiming they sued Maple Leaf International Consulting LLC, instead of Maple Leaf International Consulting, Inc. But court documents provided to Fortune by Veritas show that Pitchumani is incorrect. The lawsuits were filed against Maple Leaf International Consulting, Inc.

Throughout all this legal back and forth, some of the bad reviews have lingered. “Someone who writes something negative about you in 2006 can be there for years. It’s like bankruptcy law,” says Paul Kanarek, a 28-year veteran of the industry and senior Vice President of the Princeton Review. For Veritas, the primary concern was Google, where reviews still say “Veritas has sunk to a new low and has been operating illegally in California since 2002.” Forty-two percent of Veritas’ online leads come from Google, either through search or local reviews. (An additional 13% come from advertising on Google.) “Yelp very aggressively filters reviews. Google is a free for all,” Shrum says.

A Google spokesperson says, “We are aware that abuse and spam can become an issue and are working on improvements to the system. We need to balance the need to remove spammy reviews and the risk of accidentally removing legitimate, valuable feedback. This is not a trivial task.”

But while Veritas struggled with Google, it had no problem getting the GMAT-specific sites to take down Pitchumani’s posts. Which was convenient, since 16% of its leads come from sites like GMATClub and BeattheGMAT. Of course, it probably helped that Veritas pays these sites. So does every other brand-name GMAT test prep company, in what Kanarek calls “simply another form of advertising.”

Shrum says that these sites are his second biggest line item on his budget every month, spending thousands to make sure it’s still a partner. In return, it gets to have what BeattheGMAT’s founder Eric Bahn calls “brand presence on the site. Veritas is listed alongside its main competitors—Kaplan, The Princeton Review, Manhattan GMAT, and others—as a “Verified GMAT Course,” can have its employees flagged as “GMAT Experts” in the forums, and can host FAQ chats about the test-prep process. All of this has brought Bahn “healthy seven figures” in revenue and two million unique visitors in the past year.

In situations like Veritas’, spending the money is worth it. After all, it was these sites that gave Veritas the IP information on the suspicious posts. And these sites took down posts when Google wouldn’t.

And so what makes MLIC and Veritas’ spat noteworthy is how antithetical it is to what’s normally posted on review sites. “It is far more likely that an entity will shill itself and write favorable things about itself than it is that one entity will poison another’s well. The Veritas thing is the exception, not the rule,” Kanarek says. But it’s the rule that made the exception so virulent. MLIC’s attacks stood out because there was nothing else like them in the sunny, paid-off world of GMAT test-prep reviews.

And so Veritas and MLIC continue their tussle, two parties that refuse to acknowledge the other’s validity. Pitchumani says he’d stop hating on Vertias if they were only more honest. “If you’re doing a good job, you’re a noble company, we don’t bullshit you, this is what we offer you, just say that. As opposed to, we’re the next best thing to Jesus Christ and sliced bread.” Scott Shrum at Veritas, meanwhile, wonders, “Is this guy just batshit nuts?”

Perhaps the only thing the companies have in common anymore is the matter of that $129,319.09. Troutwine says he doesn’t even care if he gets it. “We just want the lies to stop, that’s it. We don’t even want the money.”

Which is quaint, really, considering Pitchumani’s approach: “We’ll probably sue them for more.”